KARACHI: Banks are lending more to non-bank financial institutions (NBFIs) as the private sector pays off its obligations; in the first quarter of the current fiscal year (FY25), they set a record of Rs400 billion.
NBFIs are important to the economy since they offer a variety of financial services without having banking licenses. According to the most recent data from the State Bank, credit flows to NBFIs were Rs399.86 billion between July 1 and October 11 of FY25, which accounted for 91% of all NBFI loan stock. The overall loan stock was Rs441 billion as of June 30, 2024.
While credit to the sector was Rs144.7 billion in FY23, NBFIs retired Rs71 billion in net debt in FY24. NBFIs only make up 5.8% of the financial system’s asset base, despite the fact that the nation’s financial system is bank-centric. Despite this, the industry has expanded gradually over time and provides necessary non-bank financial services.
In the midst of inflationary pressures, decreased economic activity, political unpredictability, and external imbalances, NBFIs operated in a high-interest-rate environment during CY23.
According to financial industry experts, asset management, which controls the NBFI sector, drew a lot of liquidity and made a lot of money. The industry expanded by 34.5 percent in CY23 (up from 26.7 percent in CY22), mostly due to asset management, which owns 89.6 percent of NBFI assets. This segment’s asset base increased 39.6% in CY23 to Rs3,089 billion, up from 27.5 percent in CY22. Portfolios and mutual funds dominate this market.
Growth in mutual funds and portfolios contributed to a 43.7 percent increase in assets under management (AUM) in CY23, significantly increasing their asset share in the NBFI industry. Islamic income and money market funds were the main drivers of the 41.8 percent growth in mutual funds, which make up 64.7 percent of NBFI assets.
According to analysts, NBFIs are drawn to the robust equity market, which enables them to make money even in the face of high interest rates. Since June 2024, the State Bank has lowered interest rates from 22% to 17.5%, and additional rate reductions are expected in the November 4 monetary policy announcement. Asset management firms keep a careful eye out for lucrative and investment opportunities.
NBFIs are businesses that have been granted licenses by the Securities and Exchange Commission of Pakistan to carry out a range of operations, such as asset management, leasing, housing finance, venture capital, discounting services, investment advisory, and other government-designated enterprises. The NBFI sector also includes non-bank microfinance firms.
On Monday, Topline Securities revealed that mutual funds had bought $61 million worth of shares through October 25—the most net monthly buying since April 2018.
